The Transition to IFRS in Indonesia

         

          There are five different convergence approaches a country can implement in adopting the IFRS, namely: 1) adoption of the IFRS entirely; 2) selective adoption of the IFRS or adoption within time interval; 3) IFRS adoption with modification to account for country-specific characteristics; 4) Preserving national accounting standards but in line with the IFRS; and 5) Continuation of national accounting standards (Chand and Patel, 2011, p.15). Of these five approaches, IFRS convergence in Indonesia follows both the second and third approaches, in which IFRS are adopted gradually into local accounting standards and minor modifications are made to align the standards with Indonesian regulations and business environment. This approach has led to different phases in the IFRS convergence programme, in which every phase has a set of objectives that guide the progression of the convergence process.

The convergence period (2007-present)

         As the development of Indonesian accounting standards since 1994 has followed the progress of the international accounting standard setting, the international convergence of IFRS inevitably affects the DSAK’s strategy in formulating Indonesian accounting standards. Since the publication of the 2007 codified Indonesian accounting standards pronouncement, the IAIhas stated its support to the IASB convergence programme. However, it was not until 23 December 2008 did the IAI announce its formal statement that Indonesian accounting standards would fully converge with IFRS with the expected completion date by 1 January 2012 (Deloitte Touche Tohmatsu, 2009). This marked the beginning of a period of transition to IFRS, a process that still continues until presently. In this convergence period, an ultimate goal to achieve full convergence between Indonesian national standards and IFRS has directed the sequence of events in the Indonesian accounting standard setting agenda. Accordingly, the Indonesian accounting standards have moved significantly closer to IFRS compared to the previous period.

Development of Accounting Standards in Indonesia

          The authority to set accounting standards in Indonesia in the present day is mainly held by the Indonesian Financial Accounting Standards Board (DSAK), an accounting standard setting body within the IAI. Members of the DSAK come from various sectors within the Indonesian accounting environment, including the public accounting profession, the capital market authority, the central bank, accounting academics, and industries. In conducting its duties, the DSAK is advised by the Indonesian Financial Accounting Standards Advisory Council (DKSAK), a consultative body that is also under the IAI. Although the IAI does not have a legal status as a standard-setting body (Kusuma, 2005, p.356), the regulatory framework in Indonesia requires companies to prepare financial statements based on accounting standards set by the accounting professional organisation which is approved by the government.